I took a job last year where the company agreed to give me a lump sum towards relocation expenses. The amount was $5000. The agreement was that if I left the company in less than a year I would be required to repay the lump sum. I quit the company after three months – the job sucked that bad. The company now has selt me a letter wanting me to repay them over $7500 saying I have to repay the grossed up amount. Would someone please explain how if I got $5000 that I owe $7500?
Repaying relocation agreement
byu/WatercressNumerous51 inpersonalfinance
Posted by WatercressNumerous51
4 Comments
They “grossed it up” so you’d have 5k *after* taxes, which means they actually paid you like 7.5k total and the rest went to the IRS. Now that you left early they want back the whole cost, not just what hit your bank.
Ask HR or payroll for the calculation in writing and also ask if they’re going to issue a corrected W2 so you are not taxed on money you paid back.
The difference is due to the amount of tax they paid to give you the 5k in your hand. The value does seem a bit off though (iirc, 20% but tax professionals can confirm or correct me on that). They should be able to provide you an official documentation (that they reported to the IRS and looks very much like a paycheck or any other official tax document) that breaks down the value they reported to the IRS as relocation bonus being paid to you and how much tax they paid on your behalf and how much you’ve gotten in your hand.
Relocation payment is usually classified as regular income for tax purposes.
So you owe whatever gross amount they paid you, not what ended up in your bank account. It will all come out in the wash at tax time next year.
$7500 does seem oddly high though, I’m sure they can provide you a break down if you ask.
But to broadly answer your question, yes you owe the gross amount back to them.
they grossed it up for taxes so you got 5k but it cost them 7500. check your actual agreement wording though, some only require you to repay the net amount you received